A frequently asked question in family law has to do with how much of an interest, if any, each spouse has in the couple's assets and liabilities. The way it's usually asked is something along the lines of: "I have this [inheritance item, cash, property etc. either from before the marriage or gifted to me during the marriage], how much does my spouse own of it, since we are married?"
Different states have different laws. Tennessee is a "dual property" State. This means the State recognizes both "marital property" and "separate property."
When a married couple seeks a divorce, the "marital property" must be divided equitably [which is not necessarily equally, at all] between them, without regard to fault on the part of either party. "Separate property," however, is not part of the marital estate and is not subject to division. Each spouse in Tennessee keeps their "separate" property, but may be required to share, equitably, all of their "marital" property. In order to answer the above question, therefore, one must be able to identify what is marital and what is separate property.
In Tennessee "marital property" means all real and personal property, both tangible and intangible, acquired by either or both spouses during the course of the marriage, up to the date of the final divorce hearing. This includes property owned by either or both spouses as of the date of filing of a Complaint for divorce, except in the case of fraudulent conveyance in anticipation of a divorce filing. It also includes any property to which a right was acquired through the date of the final divorce hearing.
"Separate property" means all real and personal property owned by a spouse before the marriage, including but not limited to assets held in premarital retirement accounts. "Separate property" also includes gifts, inheritances, pain and suffering awards received during marriage and it may include income from and the appreciation of property owned by a spouse before marriage.
Simply because an item is initially "separate property" does not mean it will remain separate property. Tennessee law holds that in some cases, based on the actions of the parties, the separate property may turn into marital property. This is called transmutation.
One method of causing transmutation is where properties purchased with "separate" funds, are titled jointly. This means if one spouse uses their separate property to buy something, such as a piece of property or a vehicle, but titles it in both spouse's names, the act of titling it in both names creates a rebuttable presumption of a gift to the marital estate, thereby potentially changing, or transmuting, the separate property to marital property.
Another way separate property can become marital property is under the theory of "commingling." Commingling may occur when separate and marital property are mixed together. If one spouse receives an inheritance, for example, but then spends some or all of the inheritance money on an item that is jointly titled, such as a house or vehicle, this can have the same effect as jointly titling a piece of property or item that was otherwise separate. It can turn that money into marital money.
Another way to turn separate property into marital property is where the non-owner spouse expends their time, money and effort on the separate property which preserves or increases its value. If one spouse, for example, were to own a rental property, but the other spouse worked to maintain it and/or manage it over the years, these actions could transmute the rental property into a marital asset. Similarly, if a spouse uses income from their employment for the upkeep of separate property, such as a pre-marital rental property of the other spouse, because employment income after marriage is a marital asset, it may be argued that spending money after marriage, on a separate asset of the other spouse's, can change the characterization of separate property into a marital asset.
The lesson in Tennessee is that any spouse who owns property before marriage, or who receives separate property, such as a gift or inheritance during the marriage, and who wants the property to stay as separate property, should follow these simple steps: (1) ensure that item is titled only in that spouse's name; and (2) make sure no marital assets are used to maintain or care for separate property. Seeking advice from an attorney knowledgeable in family law may be critical in ensuring one spouse is not unintentionally turning a separate asset into a marital asset, subject to equitable division in the event of a divorce.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.